Nobody loves to see a medical breakthrough more than I do. Not all medical breakthroughs are investment-worthy though. Case in point? Star Scientific, Inc. (Nasdaq: CIGX)… the former non-toxic-tobacco company that’s become more of a pharmaceutical and ‘neutraceutical’ organization in 2007, via its subsidiary Rock Creek Pharmaceutucals.

For those who’ve been following the CIGX saga, they’re most likely at one extreme end of the spectrum or the other, meaning these folks love it so much they’re blind to some painful realities, or they hate Star Scientific so much they’re blind to the potential of its newest R&D project called anatabine. [Disclosure: I am neither long nor short the stock, but I’m closer to the ‘hate it’ end of the spectrum. I am open-minded though. So, if you’ve got something CONSTRUCTIVE to add, feel free to do so below.]

Just a very little background here, only for perspective.

The challenge in owning CIGX isn’t the lack of a marketable product; low-toxin tobacco, and more recently, dietary supplements that improve metabolism, stave off neurological disorders (including Alzheimer’s), and even help smokers quit smoking (CigRx). All well and good.

The challenge in owning Star Scientific, Inc. is the dangerous practice of what I simply call ‘conceptual investing’, where the numbers are never crunched, and potential numbers are never even forecasted – not even an unrealistic forecast.

That’s where the CIGX story turns sour.

As it stands right now, this company’s market cap is a mere $600 million. That’s ‘small’ by most investors’ standards, which in theory gives new investors a relatively large piece of the proverbial pie.  Problem is, the company generated $848,000 in sales last year, and lost $28.2 million. And just for the record, that’s a pretty typical year for Star Scientific, Inc. (To its credit, the top line has been getting bigger, but the bigger top line so far has been matched by a bigger loss.)

Were it almost any other company, such a valuation would be completely unacceptable. When ‘conceptual investing’ takes over though, investors can justify some pretty incredible stuff in the name of potential. In this case, the market is pricing the potential of CIGX as if its were — wait for it — a biotech company, where current revenues don’t matter as long as there’s a shot at huge revenues in the future.

There’s only one problem with that mentality in this case though. I’m saying this as fairly and as unbiased as I can – Star Scientific, Inc. is no biotech company.

To be sure, the idea of anatabine is cool. It’s the compound that was originally used to delay the need for a cigarette’s ‘nicotine fix’ from about two hours to ten hours. As it was studied more though, it was recognized as a potential – and I stress ‘potential’ – treatment for Alzheimer’s disease via its specific anti-inflammation effect. In this instance, it controls the inflammation of the brain.

Which brings us to the million-dollar questions….

1. What is the fiscal potential of anatabine as an Alzheimer’s treatment? It would need to be worth at least $200 million (in revenue) per year to justify the current price of CIGX, which actually wouldn’t be hard to generate IF it works as described; there is no real alternative treatment.

2. How long would it take to get a final Alzheimer’s product launched, and how much more would it cost? Veteran biotech investors (particularly of development-stage companies) already know the answer even if other investors don’t… years, and many, many millions more, most of which will come in the form of dilution via stock sales.  If you’re in CIGX for the long haul, buckle up. Worse, as I said above, Star Scientific, Inc. is not a biotech company, and its subsidiaries aren’t really seasoned names either. That leaves the window open to missteps and waste.

[Side note: The simplicity of anatabine’s action is both good and bad. If Alzheimer’s really is  matter of controlling inflammation of the brain, it would NOT be hard for a more seasoned biopharma company to develop something as good if not better.]

3. Can its other smokeless tobacco products make a positive dent in the meantime, or ever? You know, I applaud the desire to quit smoking, or at least reduce the downside of using tobacco. There’s a reality that Star Scientific seems to be missing though…. the company’s ignoring the ridiculous and innate desire of consumers’ willingness to destroy themselves, and their willingness to look at the downside of smoking and say ‘meh’. Ask any smoker what they miss – aside from the nicotine fix – if they try to quit smoking, and they’ll say they miss the feeling of a cigarette between their fingers and the social benefit that smoking can bring… something CigRx doesn’t offer. (I didn’t say it was a brilliant reason – just a reality.)

So there you go…. an honest reality about an expensive company with little revenue, few foreseeable growth prospects, and a long history of tepid results. The future is resting almost solely on anatabine…. a pretty big bet at this stage of the game.

So how about it? Agree or disagree? Got more information or perspective? Chime in intelligently and thoughtfully below.